Investments in China by Canada’s largest public pension funds are coming under increased scrutiny amid deteriorating relations between the two countries and allegations that some of these investments are financing the oppression of the Uyghur minority in China.
Recently, representatives of the Ontario Teachers’ Pension Plan and the British Columbia Investment Management Corporation, which manages the pensions of public sector workers in British Columbia, told a parliamentary committee responsible for studying Canada-China relations that they had halted new direct investment in China due to the growing risks associated with that country.
The pause came in the wake of allegations of foreign Chinese interference in the 2019 and 2021 Canadian elections, and allegations of harassment by Chinese state actors of Canadians opposed to the Communist Party.
Earlier this month, Canada expelled a Chinese consular official. China retaliated within hours, in turn expelling a Canadian diplomat and claiming that Canada had “sabotaged” relations between the two nations.
Invest prudently
Canada’s two largest public pension plan investors — the Canada Pension Plan Investment Board (CPP) and the Caisse de depot et placement du Quebec (CDPQ) — say, however, that they need be exposed to the world’s second-largest economy to deliver returns to Canadians, but they promise they can invest responsibly in China.
The senior managing director of the Canada Pension Plan Investment Board, Michel Leduc, says the fund is “very cautious about the types of assets we acquire and the different levels of political and geopolitical risk — rather than to completely avoid what could become the biggest economy in the world in the next 10, 15 years”.
The pension plan holds 10% of its $536 billion in net assets in China.
The executive director of the Uyghur Rights Advocacy Project, Mehmet Tohti, however, believes Canadians’ pensions are being invested in companies that profit from or help enable the Chinese government’s persecution of its people.
“Among the companies, many of them are part of the forced labor supply chain,” he said in an interview.
The United Nations High Commissioner for Human Rights said last August that China was committing “serious human rights violations” against Uyghurs in the Xinjiang region. He called for further investigation into “allegations of torture, sexual violence, ill-treatment, forced medical treatment, as well as forced labour”.
The Chinese government says it is fighting terrorism and extremism in the region and operating vocational education centers as part of a “deradicalization” campaign.
In 2021, the Canadian Parliament voted to label the Chinese government’s treatment of the Uyghur people as “genocide”.
According to Leduc, while the fund is cautious about investing in China, it recognizes that it is not easy to trace the production lines of certain products, such as solar panels, because a large part of the supply worldwide comes from a specific region in China.
According to the US government, nearly half of the world’s supply of polysilicon — a key material for solar panels — is made in China’s Xinjiang region, home to the Uyghur people. The United States claims that several sign makers have been accused of using Uyghur forced labor.
And since most of the world’s solar panel manufacturing takes place in China, it’s nearly impossible to tell which panels may include polysilicon from Xinjiang, according to US officials.
“The world needs solar panels, you can’t live without them,” Mr. Leduc argued, adding that the fund wants to work with companies that do their best to understand their supply chains, rather than with those who are not interested in change.
In November, Mr. Tohti told the parliamentary committee that the manager of the Quebec pension fund had invested more than $2 billion in companies associated with the alleged Uyghur genocide or forced labor.
Hong Kong Watch, a UK-based non-governmental organization, says many Canadian pension fund managers invest in index funds — a basket of various company stocks — that include companies linked to Uyghur forced labor or that were involved in the construction of internment camps for the oppressed minority.
These pension funds include the CDPQ, the British Columbia Public Sector Fund and the Alberta Investment Management Corporation.
The CDPQ has invested about 2% of its $402 billion portfolio in China. The fund has developed “rigorous criteria (environmental, social and governance) for all [ses] investments in order to avoid investing in companies whose practices violate principles such as respect for human rights, ”supported its spokeswoman Kate Monfette in an email, but without giving examples.
The Fund ensures that a “small part” of its portfolio is built using indices or managed externally.
Close ties with the state
Hong Kong Watch’s director of policy and advocacy, Sam Goodman, mentioned that corporate governance structures are not the same between Canada and China, where the state plays a much larger role in the economy.
“Under China’s National Intelligence Law and security laws, these companies, especially technology companies, are obliged to work hand in hand with the Chinese state and they are not allowed to disclose to an organization or anyone outside of China the extent of this collaboration,” he explained in an interview.
That means companies like multimedia giant Tencent, best known for its social media apps and video games, could be implicated in the crackdown.
“Tencent, as the owner of WeChat, has been accused by Human Rights Watch of building a backdoor into their software that allows authorities to identify and detain Uyghurs who share religious material,” Goodman said. .
The CPP Investment Board invested over $1 billion in Tencent in 2016.
Mr. Leduc told the parliamentary committee that his fund was monitoring this investment “very, very closely to continue to understand the risks, including some of the broader human rights dimensions of this investment.”
The British Columbia pension fund has invested in a company — through an index fund — sanctioned by the United States for developing an artificial intelligence system to recognize Uyghurs based on their facial features.
Daniel Garant, vice-president of the fund, indicated in the parliamentary committee that he “undertook with the index providers to improve what they put in the index”.
In a statement, the BC fund explained that investments in indices are necessary because they provide “the flexibility and liquidity required as part of our diversified portfolio”.
The Alberta Investment Management Corporation canceled a recently scheduled appearance before the parliamentary committee and declined to comment, citing the province’s ongoing election campaign.